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Sitting in a conference room in Redwood City, Calif., in the offices of Lunera Lighting, I bask in the glow of a warm light, emitted by a glowing square affixed to the ceiling. The light fills up the room, and it's extremely easy on the eyes: a pleasing mix of moonlight and incandescence.And I notice immediately what's missing: that subtle flicker that's the signature of headache-inducing fluorescent lights in commercial spaces around the world. Early-generation LEDs haven't impressed me, with their thin blue glow that's just as stressful to peer through as fluorescent light. Which is why I am so impressed by the Lunera light.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%The LED market is clearly set to soar, and that could be a positive herald for U.S. competitiveness in manufacturing. In fact, Lunera CEO Michael Lesnya is betting on it. Industry tracker iSuppli predicted on Dec. 7 that global LED revenue will expand by 10.9% in 2010 to reach $7.4 billion, up from $6.7 billion in 2009. The LED industry snapped back this year from a production glut to a more balanced supply-and-demand state, as makers of LCD TVs and laptops switched over to designs that light up screens with LEDs.

An 18-Year Lifespan

Lunera is part of that surge, and Lesnya sees a bulging pipeline with total order value north of $10 million. Lunera's first big customer is eBay (EBAY), which has an aggressive green policy. And the next generation of LED modules are far more powerful and efficient -- and cheaper. Lesnya expects that his LED products, which run at a 50% to 100% premium over competing fluorescent products, will achieve initial cost parity with legacy products within four years. Which would make putting a Lunera system in your office a no-brainer: It sucks up half the energy of fluorescent lighting -- and lasts 18 years.
Most products using LEDs are made in China, but Lunera keeps its production close to home, at a contract manufacturer in the East Bay, near San Francisco. "It's a fairly complex manufacturing process," Lesnya says, "and we like to keep very close tabs on what's going on, and to ensure quality control."

In fact, Lunera keeps several engineers on the premises at the assembly line, to troubleshoot and study the production process, as the company seeks to reduce the number of required parts and the steps that rely on human hands. It now takes roughly a worker 45 minutes to assemble a Lunera light, due to the system's complexity, which includes the "secret sauce" that gives the lighting its signature warmth and roundness. "If we can get the number of minutes required per unit down to five, then labor costs are a nonissue at that point, and other factors become far more impactful on cost," Lesnya says.

Robots Cut More Jobs Than Globalization

How long will it take to get the process down to five minutes? Lesnya doesn't know but, he says, that's not the only part of the China price differential that's quickly coming down. His company exhibits signs of a potential rebound for California manufacturing. That's because as the world economy recovers, and transport prices rise with it, it gets more expensive to make stuff far from the customer. (Witness the massive oil spike in summer 2008, when prices reached nearly $150 per barrel.) At the same time, production automation cuts labor costs.

The dirty secret of manufacturing is that the value of goods manufactured in the U.S. has grown even while employment has plunged. Robots have more to do with the gutting of the manufacturing sector than globalization. The same is true in China. While companies are loath to invest in new capacity in the U.S., due to the absence of credit, that reluctance will turn on a dime once domestic and global demand picks up. The plunge of the dollar against virtually all other currencies has already made manufacturing in the U.S., for either domestic or global consumption, affordable again.

What's more, these newer manufacturing lines will focus on higher-value-added businesses, like complex LED lighting or electric cars. (A number of companies, including Tesla Motors, have announced plans for manufacturing facilities in California and elsewhere in the U.S.)

Lower Costs but Higher Value?

Lesnya, however, isn't averse to all low-cost labor centers. Mexico might be an option, due to its proximity to the U.S. and its well-developed contract-manufacturing infrastructure. But, again, as hands-on participation in product assembly shrinks, then location becomes far less important.

Of course, that could mean the continued decline of U.S. manufacturing costs. But conversely, it could mean an acceleration of the value of U.S. manufacturing output -- a far more important number because that will feed plenty of salary potential to the engineers, programmers and logistics managers keeping the manufacturing operations running (not to mention all relevant lawyers, accountants and other secondary service providers).

All told, for California manufacturing, things may be brighter than they appear.